The pandemic induced restrictions hampered business as usual throughout the world and created a need to explore better avenues in order to maintain the order of sustenance. With the available technology acting as the catalyst, the global supply chain industry saw a rise in the number of start-ups catering to development of advanced technical systems, warehousing, last-mile delivery participants and much more. Indian logistical ecosystem was also a part of this revolution and was able to grab the attention of domestic as well as international venture capitalists. In this piece, we explore the what, why and how of investments being made in Indian logistics start-ups.
According to a report by McKinsey & Company, there have been fundamental efficiency increases witnessed by the industry, along with a blast in the trade volumes, which together have bought down the costs due to economies of scale. However, the inefficiencies have not been eradicated completely and need quick, flexible solutions.
As incumbent logistics companies are often too rigid to bring about drastic changes, a new generation of logistics startups aims to solve some of the industry’s oldest issues and address entirely new and rapidly growing market needs.
These brilliant startups, and now unicorns, are proof that the logistics and supply chain landscape in India is undergoing a change. The Indian industry has many more of such logistics startups supporting it from the inside as it walks towards a full recovery. And Venture Capitalists, domestic as well as international, have been eyeing as well investing in these technology-driven startups aggressively since the past few years.
INVESTMENT TRAJECTORY: NUMBERS AND MODELS
The McKinsey report also states that in the last decade, though the number of investment deals have either remained stagnant or decreased, the amount invested via these deals has increased considerably. It also says that most of the funding is concentrated in the top 10 startups.
Adding on, Shashank Randev, Founder at 100x. VC says, “The investment sentiment, in general, has been extremely bullish in the space. The past half-decade has seen massive capital deployment in the industry. In fact, more than 120 of the biggest logistics startups represent an estimated 90%, or USD 26 billion, of total funding in the sector. Even before the pandemic and the further push provided by it, the importance and ease of accessibility has been imperative for brands to deliver, thus, making it an indirect favourite of investors.
“If we were to compare models, last-mile delivery and logistics management platforms have gained investor confidence. Increasing solutions are integrated with modern technology, making them attractive and thus, more scalable.”
MAKING CAUTIOUS INVESTMENT DECISIONS
Last year, Delhivery raised USD 100 million equity investment from FedEx as it tries to secure a foothold for further expansion into the Indian market. Porter raised around the same amount in its Series E funding round led by Tiger Global Management. Zepto also raised US 100 million in Series C funding round led by Y Combinator’s Continuity Fund, increasing its total valuation to USD 570 million in less than 2 months. Addverb Technologies raised USD 45.9 million in series B funding round led by Reliance Retail.
One may ask about what goes behind a VC’s investment decision for a particular logistics startup. “For logistics, understanding businesses and their distribution channels, then building an asset light yet efficient model might be a delight for the investors. For investors, at least for us, a strong founding team, clear market opportunity, a definite moat and most importantly, an internal conviction are the deal sealers.” says Mr Randev.
Adding on, Padmaja Ruparel, Co-founder at Indian Angel Network says, “When it comes to the Indian logistics sector, there are several aspects that still remain unsolved, and new adjacent opportunities emerge. This provides for a large customer base which is imperative for investors (like Angels / VCs who invest in the equity of the company).
Secondly, investors look for innovative product/ proposition with some traction. This really means that there is customer endorsement for the product. Basically, is there someone who is willing to/has paid for the product/proposition? Investors invest in businesses and not in ideas so customer endorsement is imperative. Companies building competitive solutions is difficult for startup investors to invest in as the larger competing businesses will grab the market faster as they have larger resources.
And thirdly, the most important factor is the team. Does the founding team understand the space, customer need/problem, how they will build the solution, and scale the business. Will the founder be able to build a team to grow the company? And logistics is a very difficult space and therefore, this is a very key parameter for investors.”
This is an abridged version of the original story that was published in the May 2022 edition of the Logistics Insider magazine. To read the complete article, click here.